by Vadim Pokhlebkin
Updated: August 09, 2018
A curious thing happened to crude oil prices on Wednesday (Aug. 8). The market tanked 3.2%, but that's not unusual; the curiosity is in crude's fundamentals, which were said to have sent prices lower.
See, on the one hand, the Energy Information Administration said that "total U.S. stockpiles of oil and fuel rose to a seven-month high" (Seeking Alpha). That sounds bearish.
On the other hand, the same report also showed that, "U.S. crude stocks fell by 1.4 million barrels last week." (CNBC) A drop in supply is supposed to be bullish.
Why did crude oil traders choose to focus on the "bearish" news and sell -- instead of looking at the other part of the report and buying?
You could say, "China." After all, the same day, China did threaten with additional tariffs on U.S. goods. And some market commentators said exactly that: China tariffs news was the wild card, and that's what tipped the scale in favor of crude oil bears.
Maybe. Yet, consider this alternative explanation of the 3.2% sell-off on August 8.
The day before, our Energy Pro Service editor, Steve Craig, identified the end of the likely wave (ii) upward correction in crude oil prices. Below, you can see how the preceding sell-off was strong and directional, with little overlap. Steve labeled it wave (i).
The rally that followed had a decidedly corrective -- choppy and overlapping -- look and feel. Steve labeled it wave (ii) and told subscribers:
Posted: August 7
Bottom Line: Bearish against 69.83
Trendline support gave way with the renewed selling pressure. I'm looking for impulsive downside price action here...Trade below 67.87... should strengthen the bearish case.
Steve's bearish "line in the sand" at $69.83 held. What's more, prices stayed below the lower trendline that had contained the previous rally (see above) -- another sign of pending market weakness.
And then came the August 8 sell-off:
This is a textbook example of how useful Elliott waves and some basic technical analysis like simple trendlines can be when finding -- and acting on -- emerging trading opportunities.
As for the fundamentally based explanations, as convincing and logical as they sound in retrospect, the key word is "retrospect."
Riddle me this: The news is bullish, but oil and ETFs FALL.
Or, oil inventories are reported full, and prices RALLY.
As a trader, you see it all the time. If you sweep such "inconsistencies" under the rug, you’re missing the point.
Oftentimes, crude and natgas go where traders' psychology goes. And no other forecasting method lets you track this powerful force -- and forecast it -- as Elliott waves do.
What if you had someone in your corner to help you watch the waves of psychology in the energy markets in real time? Someone who stays alert even when you take a break? Whose job it is to help you catch the right move?